Trade Week Analysis for 10/03/14

Last week:  It was another very choppy week with no TS signals on any Forex pairs. There was one TS signal on Gold but it was a losing signal. The absence of signals was a clear indication that the markets were choppy and not suitable for my style of 4 hr trend trading. There was actually very little movement until Thursday and that was triggered by ECB news.

Risk appetite faded in the final hours of US trading last week as Ukraine concern mounted. There was talk about interruption to gas supplies to the region that would possibly also impact Europe as well. This situation, whilst it has slipped from the front pages of many media listings, still remains as a significant concern and with potential to impact risk appetite across financial markets. Having said that though, Aussie stocks made a record weekly close and other Asian markets made major gains last week too.

The 'Holy Trinity' alignment of the U/J, S&P500 and Nikkei re-emerged last week and I'll be watching to see if this holds into next week.

This week:

Chinese Trade Balance data was released on Saturday and this was much worse than expected but I’m not sure how much the impact of 'Chinese New Year' will be read in to moderate this negative result. It was a huge miss though and may seriously dampen risk appetite to start the week. Chinese CPI was then released on Sunday and and this was also weaker than expected but not as much of a miss as with the Trade Balance data. I would expect the AUD might be hit hard by this news.

The Forex index charts are now aligned for ‘risk on’ and I’ll be watching for any such follow through.

From Monday my MT 4 charts will be updating at 8 am rather than 9 am. My 4 hr updates will fit in with this new schedule.

Events in the Ukraine still have the potential to undermine any developing ‘risk’ appetite and needs to be monitored.

I am away from Wednesday to Sunday. Updates during that period will be brief and less frequent.

Stocks and broader market sentiment:

S&P500 stocks printed a new all-time high again last week. Whilst the daily and monthly chart trend lines are still supporting price I am seeing some divergence creeping in on the monthly chart. This might merely be warning of a pause as the index navigates this new lofty high but the chance of a pullback cannot be ruled out either. This is especially so given the lack of any real deep pull back following the break up through the 1,577, 1,600, 1,700 and 1,800 levels. The major break of the 1,577 level has only been tested once; a point I have emphasised in my write ups for some months now.

I am reading about a number of traders shorting the S&P500 at these lofty levels. Whilst I do see some divergence I'm not seeing many other clues pointing to a pull back just yet. I would want to see a break of the daily support trend line first before being convinced that a pull back might be on the way. I continue to watch out for further clues as to any new momentum move, long or short! In particular I’m looking out for:

S&P500 daily chart: I’m watching for any break of the daily trend line but price is holding above this for the time being. There is also a more recent support trend line that has only been in play since February but this is still supporting price too.

Ichimoku S&P500 chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. A bullish Tenkan/Kijun cross evolved on the daily S&P500 on Wed 19^th Feb. This cross was deemed ‘weak’ as it evolved below the Cloud but price is still trading above the Cloud which is bullish. Any new bullish Tenkan/Kijun cross above the Cloud would be quite significant. The last such bullish cross marked the start a long running uptrend.

EURX chart: The November and December monthly candles closed above the major S/R level of the monthly 200 EMA. November was the first monthly close above this S/R level in almost 2 ½ years! This was a major achievement for the index but it failed to hold these levels for the January close. Price closed back above the monthly 200 EMA for February though and this is rather bullish. Price has held above this level again this week.

S&P500 monthly chart: a break of the monthly support trend line (see monthly chart). The monthly trend line remains intact. A break of this support level would suggest to me of a more severe pull back or correction. The look of this ‘market top’ still appears quite different to that of the previous two market tops from back in 2000 and 2007. I am seeing a bit of divergence creeping in now on the monthly chart. This may just be as the index pauses and ponders this new high or it could be warning of a pull back. Elliott wave suggest a big correction here. I am still thinking that the 1,600 level might be the new base line for this index. The saying that ‘Old resistance becomes new Support’ holds here. I still believe that it would not be at all surprising to this 1,600 level tested again. It has only been tested once by a monthly candle since the bullish breakthrough and I would expect a significant level such as this to be tested more than once. Maybe I’m wrong here though as there have now been seven consecutive months of candles that have closed above this key level, and, without testing this region at all. To add to this thought of bearish pull back potential, the previous candle close ‘highs’ from back in 2000 and 2007 were down near the 1577/1580 area so it is entirely feasible that price may even test this region again before any continued move upwards.

Items to watch out for:

• Sat 8^th: CNY Trade Balance.
• Sun 9^th: CNY CPI & PPI.
• Mon 10^th: nil
• Tue 11^th: AUD NAB business confidence. JPY monetary policy. GBP manufacturing data & inflation report hearings.
• Wed 12^th: G& meetings.
• Thurs 13^th: NZD Cash rate. AUD unemployment rate. CNY Industrial production. USD retails sales and unemployment claims.
• Fri 14^th: USD PPI & consumer sentiment.

E/U: Price chopped lower to start the week with Ukraine concern but held above the major 1.37. There was much optimism following the ECB release on Thursday though and this saw price rally up to the 61.8% fib level of the 2011-2012 bear move. The close above this key level seems to have voided the bearish ‘triple top’ for the time being and price is now just 70 pips or so away from the bear trend line of the major monthly chart triangle pattern.

Monthly chart triangle breakout looming? I wrote about this possible move on Friday and have repeated the information here. The E/U is poised just below the bear trend line of a major triangle pattern that has been setting up on the monthly chart since back in 2007; that being the start of the major bear move. Traders need to be on the lookout for any triangle break here as the suggested move from any such breakout is of the order of upwards of 3,000 pips! The theory behind these breakouts is that the ‘height’ of the triangle represents the possible pip quota for any breakout move. I consider that I have been reasonably conservative with my target as I have only measured the height of the triangle from the 2011 region. The height measured from the 2007 region would suggest a much larger target.

The E/U is also trading just under the top edge of the monthly Cloud. In fact, a move up through the monthly chart’s triangle trend line would also see the E/U move up and out of the monthly Ichimoku Cloud. This would be a most significant bullish development as it would mean that price would be trading above the Cloud on the 4hr, daily, weekly and monthly charts.

Price is currently trading above the Ichimoku Cloud on the 4hr, daily and weekly chart and is pushing up through the Cloud on the monthly chart.

The weekly candle closed as a bullish candle.

I would expect that price action might be choppy as it navigates this region. Traders will need to see how the negative Chinese Trade Balance data impacts risk appetite with the E/U. It might get more easily spooked given it is such a high level. 

• I’m watching for any new TS signal on this pair, the 61.8% fib and the monthly triangle trend line.

E/J: Price continued coiling within a symmetrical triangle to start the week and never too far from the major level of the 61.8% fib level of the 2008-2012 bear move.  Price broke out and up from this triangle on Thursday though and made a bullish ascent up to the 143 region following improved sentiment after the ECB meeting.

I had posted a detailed analysis about the E/J during the week and suggested that any bullish continuation from a triangle break might see the 143 region tested as the first target. This level was actually achieved on Friday. A continued hold above this key 143 level, and any bullish continuation, would suggest the 100% re-tracement up at the 170 region might be a possible ultimate target.

The November and December candles were the first to close above the resistance of the monthly Ichimoku Cloud since 2008!  I had thought that price might pull back down to test this key break out level before any possible bullish continuation and this seems to have evolved. Price has already pulled back to test the top of the monthly Cloud. With this weekly close above the 143 region this now means that price is trading above the Cloud on the 4hr, daily, weekly and monthly charts which is most bullish.

The weekly candle closed as a bullish engulfing candle. I had been saying that this chart had a ‘Bull Flag’ look to it and a ‘Bull Flag’ break is what we had last week. Ukraine concern remains as a potential threat to undermine this developing bullish technical pattern though.

• I’m watching for any new TS signal on this pair.

A/U:  I had mentioned last week about the bullish pattern that had formed with the latest monthly candle close. This was a bullish reversal ‘railway’ track pattern and this is how that chart appeared back then:

This is how the chart appears now showing that there has been bullish follow through:

The 0.89 and 0.905 remained as key levels for the Aussie last week. Positive data throughout the week helped price to bounce up off the 0.89 level, break up through a bear trend line and to close the week up above the 0.905 level. This bullish momentum helped to further develop the ‘inverse H&S’ pattern on the daily chart. This pattern has been evolving for some time now.

The neck line of this bullish ‘inverse H&S’ pattern is at the 0.905 level and price broke up through this level on Thursday. I wrote about this set up on Friday and have reproduced these notes here. The close and hold above this ‘neck line’ suggests that there could be bullish continuation with this technically based move. The theory with these patterns is that the suggested bullish continuation is equivalent to the height of the H&S. The height of this H&S is about 380 ~ 400 pips or so. This would suggest a target for any bullish follow through to be up near the 0.945 region. Now, this is where it gets interesting! The Aussie is trading above the Cloud on the 4hr and daily time frame but below the Cloud on the weekly time frame. The bottom edge of the weekly Cloud could prove to be some resistance for this pair and this comes in at around the 0.94 region. This isn't too far from the inverse H&S target so it would seem like a good 'take profit' region:

Price is trading above the Cloud on the 4hr and daily charts but below the Cloud on the weekly chart and in the bottom region of the Cloud on the monthly chart.

The weekly candle closed as a bullish engulfing candle.

The A/U may be dealt a blow at market open on Monday though given the dire Chinese Trade Balance data. I left my buy limit order open over the weekend which I am now regretting. I suspect I may be filled and taken out in one swoop. I would be waiting to trade until after gauging how this negative data, and other geo-political, new is interpreted by the markets.

• I’m watching for any new TS signal on this pair and the 0.905 level.  

A/J: The A/J chopped higher all week and broke up through a daily chart bear trend line on Thursday. I noted at the time how the A/J was also setting up with a bullish ‘inverse H&S’ pattern look on its daily chart too. This daily chart resistance trend line is also the 'neck line' of this 'inverse H&S' pattern. This 'neck line' has been broken now but may be tested before any possible bullish continuation.

There was a TS signal that evolved on the A/J during the early part of the week but this signal, sadly, was not supported by the Ichimoku charts and so I left it. More pity me as this signal went on to deliver over 300 pips!

Price is trading above the Cloud on the 4hr, daily, weekly and monthly time frame which is bullish.

The weekly candle closed as a bullish engulfing candle.

As with the A/U though, the poor Chinese data may dampen trading sentiment here too.

• I’m watching for any new TS signal on this pair.  

G/U: The Cable had made a significant monthly candle close above the major monthly 200 EMA the previous week and seemed to spend last week consolidating this move. Price chopped sideways around this key S/R level all week and eventually closed the week sitting right on top of this key level.

It is important to remember that February was the first monthly close above the monthly 200 EMA since September 2008 and also the highest monthly close since the bear move of 2007-2009. These are major achievements. The close above these significant resistance levels suggests bullish continuation but I remain cautious. I am still wary given the Ukraine situation and would also still expect the monthly 200 EMA region to be tested a few more times before any potential bullish follow through.

A possible target for any continued bullish movement is best determined from the monthly chart. The 50 % fib level of the 2007-2009 bear move is up at around the 1.73 region and the 61.8 % fib is at the 1.82 region. Both of these levels might be possible profit targets. The 61.8% fib level is still only about 1,500 pips away and might seem an impossible task but I’d advise you to look at the monthly chart of the E/J and U/J before you reject this idea.  

Price is now trading above the Cloud on the 4hr, daily and weekly charts and in the Cloud on the monthly chart which is bullish.

The weekly candle closed as a bullish coloured ‘spinning top’ candle.

• I’m watching for any new TS signal on this pair and the monthly 200 EMA. 

Kiwi: NZD/USD:  Ukraine concern saw the Kiwi pull back to start last week and this closed off the TS ‘long’ signal. As fate would have it though, price then continued to rally in line with that TS signal and kept moving on and up from the trading channel breakout.

Price is now up close to a major bear trend line on the monthly chart so the Kiwi may struggle here a bit, even if there continues to be any broader risk on momentum.

Price is trading above the Ichimoku Cloud on the 4hr, daily, weekly and monthly charts though which is most bullish.

The weekly candle closed as a bullish candle.  

• I’m watching for any new TS signal.          

The Yen: U/J: The U/J chopped higher all week and eventually closed above the key resistance of the monthly 200 EMA. Friday’s NFP gave this pair quite a boost and the close well above this key level was hugely significant as this resistance level had contained price for over 4 weeks.

As with the A/J, there was a TS signal on the U/J earlier in the week but this, too, was not supported by the Ichimoku charts yet went on to deliver over 150 pips!

The 61.8% fib of the 2007-2012 bear move still looms large and above current price. This is a major demarcation point here. A continued hold below this level would be bearish but any new close and hold above would most likely signal bullish continuation. Price may be heading to test this region again though now after essentially chopping sideways for the last three weeks.

Price is now trading above the Cloud on the 4hr and in the Cloud on the daily chart which suggests a bit more choppiness. November was the first monthly candle close above the Ichimoku Cloud since mid-2007! A look at the monthly Cloud chart shows how a test of the monthly 200 EMA, and even the top edge of the Cloud, would seem quite reasonable even if there was to be bullish continuation. Price has struggled as it has emerged from the Cloud and we may still get a further test of this support but any continued hold out from this region would suggest bullish continuation.

The weekly candle closed as bullish engulfing candle.

Weekly Chart Bullish Cup’ n’ Handle pattern: The theory behind these patterns is that the height of the ‘Cup’ pattern is equivalent to the expected bullish move from the ‘handle’ breakout. The height of the Cup for the U/J weekly chart is around 2,400 pips. The interesting point here is that a 2,400 pip bullish move up from the ‘Handle’ would put price up near the 124 level. This level is the last major swing high for the U/J from back in 2007 and represents the 100% fib pullback for the move down in 2007 to the lows of 2012. Possible targets along the way include the 61.8% fib retrace level at the 105.5 region and the 78.6% fib up near the 112 region.

• I’m watching for any new TS signal, the monthly 200 EMA and the 61.8% fib level.

Nikkei: Price closed back above the 15,000 level this week and is holding above the broken trend line. 

The Nikkei closed for December and for 2013 above the 16,000 level and, also, above a major bear trend line that had been in play for over 20 years. This is a significant development for this index and is a rather bullish signal.

Note how the 15,000 level is near the 38.2% fib retrace level of this huge down move. The 61.8% fib level is back up near the whole number 20,000 level and would be an obvious target for any continued bullish momentum.

UJ and S&P500: The U/J and S&P500 traded with positive correlation for much of 2013 but, after some recent divergence, they were back in sync last week.

Nikkei and U/J: (U/J: black. Nikkei: green). Both are still trading with positive correlation.

Nikkei and S&P500: (S&P500: green. Nikkei: black).  There has been some recent divergence but these indices were back in sync last week.

EUR/AUD:  I didn't pay too much attention to this pair last week as it continued to struggle around the monthly 200 EMA. Price chopped lower with the AUD strength last week and pierced a support trend line. I am now noting a bit of a bearish set up on the daily chart. There looks to be a bearish H&S pattern forming and I will monitor this.

This bearish pattern on the daily chart contrasts with what I’ve been seeing on the monthly charts though. The monthly chart still looks bullish and suggests that price has broken through key resistance of the monthly 200 EMA, tested this level and looks poised for bullish continuation. The monthly chart also shows how this pair made a big move down from 2008 to 2012. The 61.8% fib retrace level of this big down move is back up at the 1.75 region. The monthly chart shows how the 1.75 is also a major S/R level for this pair and would be a possible target for any continued bullish movement.

The E/A is now trading below the Cloud on the 4hr and in the Cloud on the daily chart which suggests choppiness.

The weekly candle closed as a bearish candle and with a bearish reversal ‘railway track’ look to it. These types of patterns need to form after a run higher and at a resistance level and this is the case for the EUR/AUD. It has had a long run up since the channel break last March and has struggled at the resistance of the monthly 200 EMA. I noted last week that the February monthly candle closed with a bearish ‘hanging man’ look to it and this seems to have been on the money!

• I’m watching for any new TS signal and the inverse H&S.     

AUD/NZD: The A/N chopped a bit higher last week and reached back up to test the key 1.075 S/R level.  The ‘inverse H&S’ pattern on the daily chart still looks like it could be forming up here although it is a bit lopsided!

Price is now trading below the Cloud on the 4hr and in the Cloud on the daily charts which suggests further choppiness.

The weekly candle closed as bearish candle and, like with the EUR/AUD, this has a bit of a bearish reversal ‘railway track’ look to it. 

• I’m watching for any new TS signal and the ‘inverse H&S’.     

GBP/AUD: This pair chopped lower all week with AUD strength and with the GBP holding steady. The bearish H&S pattern that was setting up on the daily chart had looked to have been foiled but now seems to be forming up again.

Price is trading below the Cloud on the 4hr and in the Cloud on the daily chart which suggests further choppiness.

The weekly candle closed as a bearish engulfing candle.  

The continued hold above the 1.75 level remains as bullish though. The monthly chart shows how this pair has had a major move down starting back in 2007 and only bottomed out in April 2013. The 61.8% fib retrace level of this down move is back up at the 2.1 area and this is also the region of the monthly 200 EMA, just for added confluence. This 61.8% fib area might be a possible target for any continued bullish momentum.

• I’m watching for any new TS signal and the bearish H&S pattern.

Silver: Silver chopped sideways under the daily 200 EMA and also just under the $21.50 until Friday. Friday’s NFP lifted the USD and, in turn, put pressure on Silver and the metal slipped down but found support at the monthly pivot and 4hr 200 EMA. The support of the $20.50 level was just below this region as well. Last week’s bearish engulfing candle had pointed to this move.

The major bear trend line of the monthly chart triangle pattern is still only about $3 above current price. This bear trend line has contained price since the peak back in April 2011 and any break above this trend line would be a major bullish development.

Silver is now trading below the Ichimoku Cloud on the 4hr, above on the daily chart but below the Cloud on the weekly and monthly charts.

The weekly candle closed as a bearish candle!

The major support level below $20 seems to be down at $15, near the monthly 200 EMA.

• I’m watching for any close back above the daily 200 EMA.

Gold: Gold chopped up and down this week but held above the support of the daily 200 EMA all week. NFP and the stronger USD didn't seem to hurt Gold as it did silver though and I’m wondering if the tension in the Ukraine is helping to support this metal.

Gold is still trading above the Ichimoku Cloud on the 4hr and daily chart but below the Cloud on the weekly chart. The February candle closed up into the bottom edge of the Cloud. It is worth remembering that the November candle was the first monthly candle close below the Ichimoku Cloud since January 2002, a period of almost 12 years!  I had been wondering whether Gold is simply rising to test the bottom of the monthly Ichimoku Cloud, following the earlier bearish break down here but price might be starting its fight back now up through the monthly Cloud.

The weekly candle closed as a bullish candle.

• I’m watching for any close back above the daily 200 EMA.